City Council Hears Report on Finances
By DAVID QUESENBERRY
Patriot Publishing
The Radford City Council held a special budget work session on February 18th, where they heard a report from Interim City Manager Craig Meadows on the City’s financial condition over the past five fiscal years.
In his review of the City’s financial information, Meadows said it seemed to him that the City had an ongoing structural imbalance in its annual budget for several years which has been an issue for at least the last four budget cycles. This imbalance amounts to approximately $4 million per year. During these four budget cycles the issue appears to be that actual revenues received have been less than the amounts that were budgeted. The revenue short falls had been initially covered by ARPA funds and, for the last two years, had been covered by the revenues from the revenue anticipation notes.
Referring to a chart on Radford city funds for the past five years for governmental (General Fund) activities, Meadows said for FY 2024 revenues were at $33.5 million and expenses at $40.4 million for a shortfall of $6.9 million. With a $4 million transfer from the Electric Fund, the net decrease in the City’s financial position was $2.9 million. Over the past five fiscal years, even with transfers, there was a net decrease in the City’s financial position three fiscal years out of five where revenues were insufficient to cover expenses for governmental activities.
Meadows said he was concerned over the business type activities (Water, Sewer, Electrical, Sanitation). In reviewing the net revenue vs. expenses, the drop from a $2.1 million net gain in FY 2020 to expenditures exceeding revenues by $400,000 in FY 2024 indicated to him that the charges for services were not covering expenses. Also, factoring transfers into the business activities showed these funds were quickly decreasing the City’s net position. Meadows said his concern, particularly with the Electric Fund, were the fast changes in that area and the increases in costs to the City, which was already not covering its expenses. For the five fiscal years listed, the City’s financial position with regards to its business activities decreased four years out of five where revenues were inadequate to cover expenses for business type activities.
Concerning the declines in net position and what that could represent, Meadows referred to a chart showing actual vs. budgeted revenues and expenditures for the general fund. While the budgets were balanced, his concern was that every year for the last five fiscal years, the General Fund had run a deficit prior to transfers from the Electric Fund. The deficit for FY 2024 was $7.7 million; FY 2023, $5.2 million; FY 2022, $10 million (possibly inflated for capital project payouts); FY 2021; $11.5 million; and FY 2020, $5.8 million. Even after adding in fund transfers, the General Fund expenditures still exceeded revenue four fiscal years out of five. “The trend is” he said “your revenues simply are not covering the expenses. They’re just not.”
Meadows then reviewed the unrestricted net position, which refers to a portion of the City’s assets that aren’t restricted or committed for specific purposes and reflects the City’s ability to address unexpected or emergency expenditures. A positive fund balance, means that assets are available for use. In governmental accounting, the unassigned fund balance indicates what funds are available for an emergency.
Meadows then reviewed a chart showing the unrestricted net position of the City’s Governmental Activities .and Business Activities for FY 2020 thru FY 2024. Both of these areas were of concern to him because the FY 2024 data showed a negative $10.9 million for Governmental Activity, while Business Activities for FY 2024 showed a negative $3 million. The net position of the Business Activities fund declined overall from $4 million in FY 2020; $5.5 million in FY 2021; $4.4 million in FY 2022; $700,000 in FY 2023; to a deficit of $3 million in 2024. Meadows said in considering capital items for the utilities that “This has to be fixed.”
Concerning the Unassigned Fund Balance in the General Fund, which represented funds available for emergencies, Meadows noted unassigned fund balances were: FY 2020, $1,094,651; FY 2021, $88,460; FY 2022, $107,184; FY 2023, $82,242; and for FY 2024 a deficit of ($4,829,244). That is a sign, he said, that the revenues brought in for services and programs were not covering expenses.
Meadows said concerning the upcoming budget that a mix of increased revenue and spending reductions would be the best approach, since revenues alone could not be raised high enough to address the issue. He noted that the administration and Department Heads would be “drilling hard” in looking at expenditures for the upcoming budget.
Meadow noted that he found the City’s adopted financial policy which stated “The City will maintain an unassigned fund balance in the General Fund equal to ten percent of the City’s and School Boards operating expenses. Should the unassigned fund balance fund for the General Fund fall below this threshold per the audited financial statements in any given year, Council must approve and adopt a plan to restore this balance to the target level within three years.” Meadows said, “I don’t see that that has been the case since, . . . it goes all the way back to FY 2009. So this is not a new problem. This has been an issue for a while.”
Regarding Councilwoman Kellie Artrip’s question about the policy, Meadows responded that the City’s unassigned fund balance had been below the ten percent of the General Fund expenditures since FY 2009. Meadows told Council that the finances would take some work and that it would not be something that would be fixed in one year solely with revenue increases or expense cuts.
Meadows reported that the City had been working on its cash flow and referred Council to a chart showing cash at year’s end. Despite claims that the City was “broke”, he said the City did have cash and mentioned that at the end of FY 2024 the city had cash of $4.8 million. Given his concern over the City’s business activities fund, Meadows noted the fund for FY 2024 had dropped to$798,382 and added that the City had to take care of those business activity funds.
Councilman Guy Wohlford questioned how the City had cash yet it was “going in the hole” and asked for an explanation. Referring to the cash chart, Meadows responded that the City had cash, but it is was assigned or encumbered to certain items and could not be used for something else. Wohlford then asked where the money was coming from to pay current bills that the City was “going in the hole for.” Meadows responded that the City was monitoring monthly the cash available. At the end of January, the City had $3.2 million in cash before payroll, retirement payments, and accounts payable were disbursed. Meadows noted the City was still behind in its payments to AEP and the schools.
At the end of his presentation, Meadows reviewed surrounding localities tax rates, utility rates, solid wastes and electrical rates. He said that in particular the environment for electrical rates had changed dramatically which made it difficult to administer and understand. Meadows said his next task was to “set the stage” for the upcoming budget.
The Radford City Council’s next regularly scheduled meeting will be Monday, February 24, 2025 in the Council Chambers at City Hall, 10 Robertson Street.